BA in pricing probe; other airlines get inquiries

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LONDON (MarketWatch) -- British Airways Plc said Thursday it's being investigated by competition authorities in both the U.S. and U.K. over ticket prices and fuel surcharges.

Other transatlantic airlines including Virgin Atlantic, United Airlines and American Airlines said they have received inquiries and are cooperating with the authorities.

In response to soaring fuel prices, airlines two years ago started passing on some of the bill to passengers through fuel surcharges applied to each ticket. Analysts say the authorities are investigating whether the airlines may have worked together on when and by how much to raise those charges.

The U.K.'s Office of Fair Trading said it had visited BA's business premises on June 13 as part of a criminal and civil probe into alleged price coordination with other airlines in relation to fuel surcharges for long-haul passenger flights to and from the U.K.

"The OFT investigation is at an early stage. No assumption should be made at this stage that there has been an infringement of competition laws," said an OFT spokeswoman.

From the U.S. end, the Department of Justice is involved.

A United Airlines
UAL, +6.29%
spokesman said Thursday the carrier had received an inquiry and was cooperating fully but that the Department of Justice said it's not a target of the investigation.

American Airlines said it was subpoenaed by a federal grand jury in connection with a government investigation into alleged price fixing in the air passenger industry. American
AMR, +4.54%
said it has been informed that the company is not a target of the probe.

Richard Branson's closely held Virgin Atlantic said it was aware of the investigation and was assisting in inquiries but wouldn't confirm it was directly involved.

BA said it's cooperating with the inquiry and that its policy is to conduct business in full compliance with all applicable competition laws.

A spokesman for Air France-KLM (003112) said it was not concerned by the probe. Deutsche Lufthansa (823212), meanwhile, said it wasn't aware of being involved in the investigation. Delta Air Lines also said it hasn't received an inquiry. See more global markets coverage.

Among BA's partners in the One World airline alliance, Iberia, Cathay Pacific and Qantas said they had not been contacted. An Aer Lingus official wasn't available for comment.

Maximum fine is 10% of worldwide sales

"Although an investigation by the E.U. and the U.S. is going on into cargo pricing across the country, this news on passenger price investigation came as a surprise to us," analysts for Deutsche Bank told clients. The broker added it would be "very surprised" if a specific issue relating to BA's pricing had developed.

British Airways said Commercial Director Martin George and Iain Burns, head of communications, have been given leaves of absence during the probe.

"Unfortunately, though, putting key personnel on leave is a difficult signal for the market to interpret...and these investigations can take months, so we believe this news will mark the end of BA's recent strong performance in difficult markets for the time being," the Deutsche Bank analysts added.

A spokeswoman for the OFT said the maximum penalty is a fine representing 10% of worldwide sales and a maximum term of five years in prison, or an unlimited fine for the executives involved. BA's worldwide sales came in at 8.5 billion pounds ($15.6 billion) in the most recent fiscal year.

BA started passing on some of its fuel costs to passengers in May 2004. Since then, it has added six fuel surcharges to ticket prices. Passengers now pay 70 pounds ($129) in charges on a round-trip long-haul ticket.

Other probes underway

Separately, in February BA said it was being investigated by the European Union and U.S. antitrust officials about alleged price fixing in its cargo activities.

Also separately, earlier this week, members of the SkyTeam passenger airline alliance confirmed receiving a so-called statement of objections from the European Commission related to antitrust infringement.

The commission's competition office has been reviewing the SkyTeam alliance since it was launched in 2000. The scope of its inquiry, which originally focused on Aeroméxico, Air France, Alitalia, Czech Airlines, Delta Air Lines and Korean Air, was extended when Continental, KLM Royal Dutch Airlines and Northwest Airlines joined the grouping in 2004.

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